Wrong! Furious Scholz lashes out at economists over irresponsible EU oil and gas call

Ukraine Crisis: Olaf Scholz negotiates with Vladamir Putin

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The German Chancellor said economists were not only “wrong” but also “irresponsible” for suggesting the economy would weather an outright ban on Russian oil purchases following Moscow’s invasion of Ukraine. Mr Scholz accused the economists of making suggestions based on “some mathematical model that in the end doesn’t really work” during an interview on German television.

So far, the European Union remains divided with the bloc’s 27 members unable to agree on an embargo, with Germany warning against hasty steps that could push the economy into recession, and, some countries, such as Hungary, opposing any bans.

An EU embargo would require unanimous approval from all 27 member states.

Many buyers in Europe have shunned Russian crude voluntarily to avoid reputational damage or possible legal difficulty.

 

PCK SCHWEDT Germany’s refinery, 54 percent owned by Rosneft, receives crude oil via the Druzhba pipeline.

While, LEUNA The land-locked Leuna refinery in eastern Germany, majority-owned by TotalEnergies, is also fed Russian crude by the Druzhba pipeline.

European governments have shied away from imposing a ban on energy imports from Russia over fears of the impact it would have on the economy.

Europe gets 40 percent of its gas and 25 percent of its oil from Russia, and since the war, has scrambled to set out proposals to reduce its dependency. Russia is just as reliant on Europe, with oil and gas its dominant sector and paying for government.

Estimates of the impact of a gas boycott or embargo on Europe vary but most involve a substantial loss of economic output, especially since the war and the resulting surge in energy and raw material prices is already weighing on Europe’s economy.

US sanctions permit exceptions for payments for oil and gas, though it has banned Russian energy imports itself.

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It comes after Russian President Vladimir Putin demanded nations pay for energy imports from Russia in rubles.

But The Group of Seven (G7) major economies agreed to reject the demands with Germany’s energy minister Robert Habeck saying “all G-7 ministers agreed completely that this (would be) a one-sided and clear breach of the existing contracts”.

He said officials from France, Germany, Italy, Japan, the United States, the United Kingdom and Canada met on Friday to co-ordinate and that European Union representatives also were present.

Mr Habeck said that “payment in ruble is not acceptable and we will urge the companies affected not to follow (Russian President Vladimir) Putin’s demand”.

Putin announced last week that Russia will demand “unfriendly” countries pay for natural gas only in Russian currency from now on. He instructed the country’s central bank to work out a procedure for natural gas buyers to acquire roubles in Russia.

Economists said the move appeared designed to try to support the ruble, which has collapsed against other currencies since Putin invaded Ukraine on February 24 and Western countries responded with far-reaching sanctions against Moscow.

But some analysts expressed doubt that it would work.

Asked what happens if Russia turns off the taps now, Germany’s energy minister said: “We are prepared for all scenarios.”

Mr Habeck said Russia needs rubles to finance its war at home, such as payments to troops, adding “Putin’s demand to convert the contracts to rubles (means) he is standing with his back to the wall in that regard, otherwise he wouldn’t have made that demand”.

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